SCORE

If you have a business, you should check your personal and business credit score. You can do that for free at nav.com (scroll to the bottom of the page and click on “Business Credit Scores & Reports”). More than 60% of businesses use their business credit score or a combination of their business and personal credit score to get financing (Source: Federal Reserve Small Business Credit Survey 2020).

Get a Federal ID Number (FEIN) and use a consistent start date on all of your paperwork. File paperwork to become a legal entity or file with your county for a DBA (Doing Business As). Very important to have a business bank account and try to leave at least a $1000 balance in there at all times. They look to see how many deposits you have because they don’t like to see a company reliant on just a couple of customers. Also, try not to ever over draft your bank account, even if you have a line of credit to protect for that.

Most critical items for getting financing are ability to service the debt, business and personal credit score, strength of the company and the guarantor (which is higher if you have been in business for at least 2 years), collateral, and up to date financials. Lenders will want to see 1-2 years of financials (business and personal tax returns), a plan for what the funds will be used for (accounts receivables, inventory, equipment, real estate). Depending on the loan request, a financial forecast on how the loan will generate revenues and profit is also good.

All loans will require a personal guarantee (so good personal score is important) and collateral. Collateral can be anything in the form of hard assets (ie. Equipment, machinery, real estate and inventory) or soft assets (accounts receivables). If collateral is an issue, there are alternative avenues to pursue (SBA, personal assets such as equity in a home, or equity in business real estate). A lending institution will at the bare minimum require an “all asset” filing. Each lending institution will have different loan policies that stipulate the collateral required. The longer you have been in business, utilized both personal and business credit and your financial strength (both on the personal and the business side) can also determine the type of collateral required for a business loan.

There are different types of loans such as lines of credit, term loans, SBA loans, and commercial real estate loans. SBA loans are loans that are guaranteed by the Small Business Administration.   These loans are not made by the SBA but by individual lenders such as banks or credit unions.  The special loans that have come out since Covid 19 are an exception to this. There is an eguide entitled “Is an SBA Loan Right for You? The Quick Guide” at score .org and the link is https://www.score.org/resource/is-sba-loan-right-for-you-quick-guide   Just because you can’t get an SBA loan from one lender doesn’t mean you can’t get one from another lender.  Lenders can have additional restrictions on top of the SBA.

Building business credit matters because it can affect interest rate, insurance/bonding, government contacts, and certain types of financing. The top 3 commercial credit bureaus are Dun & Bradstreet, Equifax and Experian.  If you would like to learn more about improving your credit score, go to SCORE.org and watch the recorded webinar entitled “Smart Credit Strategies for Small Business Owners”.

It is very important to make sure you have a good personal and business credit score. Please reach out to SCORE at score.org for mentoring or check the numerous articles and webinars in the SCORE library.

About the Author(s)

Sharon Schappacher

Sharon Schappacher is a business mentor with SCORE’s Tip of the Mitt chapter, and currently serves as the chapter’s chairperson.

Chapter Chair and Mentor, SCORE Tip of the Mitt
Financing and Your Business Credit Score